Bitcoin seems to be all the craze these days. It’s making financial headlines almost everyday. The news is usually about the price of Bitcoin hitting new highs, but there are also news about hacks where a lot of Bitcoin was stolen.
Bitcoin is a “cryptocurrency”, which is basically a digital currency - just like the Ringgit, except it only exists on a computer. You can find the finer details here if you’re interested. We won’t go into a discussion about the features of Bitcoin, so we’ll leave it at that a lot of people like the advantages Bitcoin offers over conventional currency like the Ringgit.
Bitcoin has gained so much traction that some of our local shops have started accepting it, such as this Kelantanese nasi kerabu stall, and these noodle stalls in Puchong, Selangor. You might not have even questioned whether Bitcoin is legal in Malaysia, until some other countries started banning it. Our own Bank Negara was also deciding on how to treat Bitcoin in October 2017 (we’ll get to their actual decision later).
But in the first place, is Bitcoin legal or not?
Bitcoin is not recognized as “money” in Malaysia
One of the key features of Bitcoin is that it’s not issued by the Central Bank of any country. The thing is, this feature is exactly what makes Bitcoin not recognized as money in Malaysia (or “not legal tender” as the law puts it).
In Malaysia, what’s recognized as currency is controlled by the Central Bank of Malaysia Act 2009 (CBMA 2009), and Part III of the Central Bank of Malaysia Act 1958 (CBMA 1958). Under Section 20 of the CBMA 1958, only Bank Negara has the right to issue currency in Malaysia - any currencies issued by other people are illegal.
“Legal tender” means money that’s accepted for payment in Malaysia under Section 24 of the CBMA 1958. And since Section 18 defines the currency of Malaysia as the Ringgit, it’s not just Bitcoin, all digital currencies are not recognized as legal money in Malaysia.
Is Bitcoin recognized as a “foreign currency” then?
Cryptocurrencies like Bitcoin could still be recognized as a “foreign currency” under our CBMA 2009. Section 2(1) defines a “foreign currency” as:
It could be argued that since Japan recognizes Bitcoin as money, it could be considered a “foreign currency”. But this still doesn’t legalize Bitcoin, because all foreign currencies, whether the US Dollar, UK Pound, or Indian Rupee, are not “legal tender” in Malaysia. While we see currency exchange at banks and licensed money changers as part of everyday life, you won’t see someone trying to pay the mamak shop in US Dollars - it’s not accepted as money in Malaysia. Even if the mamak shop accepts US Dollars, it’s a private arrangement between you and the mamak. In the end, the shop will still have to convert it into Ringgit to get his money’s worth.
Digital currency exchanges need to report their activities
Bank Negara’s long-awaited decision on Bitcoin is that they’re not endorsing digital currencies There are no plans to legalize nor regulate digital currencies either, but Bank Negara is putting reporting obligations on the exchanges under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA).
Bitcoin is not controlled by a central authority (like Bank Negara), and transactions are encrypted into the blockchain technology. You and I could exchange Bitcoins for any reason imaginable, and no one would ever know. This is where dealings like drug trafficking, money laundering, and even funding terrorism could take place. In fact, Bitcoin was used as the currency on the Silk Road - a since busted internet marketplace where a lot of illegal drug sales were carried out.
Under the AMLA, digital currency exchanges will have to report any transaction that goes through them, which includes the following information:
The identity and address of both parties to the transactions
The identity of the accounts affected by the transactions
The type of transaction
The date, time, and amount of the transaction
These regulations have since taken effect from 27th February 2018 through this regulation issued by Bank Negara. According to Section 14 of the AMLA, digital currency exchanges will also have to promptly report any transaction that is suspicious or might be linked to money laundering, terrorism funding, or other illegal activities. These measures are far from regulations on Bitcoin, but it’s a start to make it more transparent and weed out the crooks. In fact, Australia has implemented similar measures to stop criminals and terrorists from money moving around undetected.
Yes, it’s still legal to own Bitcoin, but at your own risk
To clarify, Bitcoin is not illegal like cocaine or a giant sword. It’s just not recognized as a currency you can use to pay for things in Malaysia.
Other than reminding the public that Bitcoin is not legal tender, Bank Negara is also warning us that:
While technically people can still do business using Bitcoin here, it’s not protected by law - which means that if a dispute arises, Malaysian law can’t help you. Here’s a few tips from KCLau to avoid Bitcoin scams online. Bank Negara is also advising the public to evaluate the risks of cryptocurrencies carefully before making any investment decisions. Because if you make a mistake with Bitcoin, it might mean losing more than just a bit of coin…